While speculation overseas in water treatment centers on French contemporaries, Severn Trent Services-U.S.-based subsidiary of Birmingham, England's Severn Trent PLC-has quietly amassed a sizable position in water treatment disinfection, membrane technology and laboratory services.

Most notable to the point-of-use/point-of-entry (POU/POE) water treatment segment was December's acquisition of Universal Aqua Technologies (UAT), a Torrance, Calif., maker of bottling equipment and membrane-based water purification systems ranging from residential undersink to large desalination plants.

UAT, which recently moved into a new 55,000-square-foot facility is the producer of bottling systems for Perrier, the world's No. 1 water bottler. UAT's president, Marwan Nesicolaci, now manages export sales for Severn Trent Services. Hu Fleming, vice president of water purification services, said the Egyptian's international experience was only one of the plusses Severn Trent found in UAT, now known as Torrance Operations.

"Not only Marwan but his team are relatively strong in the Middle East," Fleming said. "And the Middle East for us is still a growth market for water equipment. There's a lot of activity, not just for desalination units for drinking water but drinking water membrane-based systems, advanced filtration systems and some water recycling. We see Asia as attractive as well."

Fleming started in water treatment at Alcoa Separations, helped launch Zenon Environmental and was Crane Fluid Systems president, before picked by Severn Trent Services CEO Bill Cook to join the non-regulated business arm of Severn Trent PLC in April 2000. Severn Trent PLC is a nearly $3 billion company in drinking water, wastewater and utility services with 14,000 employees worldwide. Fleming already was consulting with Severn Trent Services, formed in 1998, on strategic acquisitions, when Cook-Hercules/BetzDearborn past president-was hired.and he had great respect for him, Fleming said.

Today, the new company has made some 60 acquisitions and is the most profitable arm of Severn Trent with sales at $600 million plus and growth of 44.3 percent last year. Fleming attributes that to the fact companies it's targeted for acquisition are No. 1 or 2 in their business segment as well as market niches and regions where it's chosen to concentrate efforts. He said 80 percent of what Severn Trent Services does is municipal with most of the rest in industrial water treatment. It does offer some POU/POE but doesn't see the market as one to pursue just yet.

As for challenges, Fleming said he's very concerned with the environmental turnaround of the Bush Administration in the United States coupled with a slowing world economy and implications on environmental and water treatment spending that's largely regulatory driven. "Ignoring politics, I think everybody would agree it really is clear the Bush Administration has pulled back on a lot of environmental drivers," Fleming said. Still, he doesn't expect that to stop his company from reaching its goal of $1 billion in sales and possibly pursuing an independent path within five years.

WC&P: The reason we picked Severn Trent Services to call was its international focus and I'd noticed that there were several acquisitions that you'd made recently.

Fleming: All told, we've made more than 50 acquisitions in the past five years. Our initial thrust into development a critical mass in North America has been via acquisitions. However, we have now focused on integrating and growing the business as a single entity. Having said this, we remain aggressive in adding capability through acquisition, and you'll continue to see aggressive growth via acquisition for the foreseeable future.

WC&P: In the past year to year and a half in particular. The one that kind of grabbed us, specifically, was the Universal Aqua Technologies (UAT) buy, which fits more into the point-of-use/point-of-entry industry. Tell me a little bit about Severn Trent, its focus and its strategy in some of these acquisitions?

Fleming: Well, we are the non-regulated arm of Severn Trent PLC, which is based in Birmingham, England, and is a leading provider of water, waste and utility services employing more than 15,000 people globally and with about $2.9 billion in sales last year. It also has been involved in acquiring various water purification technologies and businesses that provided them as far back as 1993. We were created in 1998 to consolidate those unregulated businesses under Severn Trent Services and based in Fort Washington, Pa., to pursue growth in the North American market, although we're actually an international company. With UAT, we identified a strategic need to add membrane technology, for drinking water, waste water recycle/reuse, and selected industrial applications that fit our strategy that we did not have. So, UAT is the first -- but, hopefully, not the last -- acquisition to provide membrane technology. We have expanded the Torrance, Calif., facility, and will continue to do so. It has been a very, very good acquisition to date. We did not acquire for POU capability as this is a small area for us, and not really strategic.

WC&P: The list that you have under the Water Purification Solutions side, you've got Capital Controls, Clortec, Exceltec, Samsco, Semblex, Tetra, UltraDynamics and now UAT. What were you looking for in terms of the companies and how they complement each other.

Fleming: To summarize, our focus areas were/are: 1) disinfection processes/technology, and 2) selected filtration capability, i.e., direct drinking water production, municipal recycle/reuse, advanced filtration and a few other specialty areas. Each provide some product and technology requirements for one of these two areas. This now gives us a very broad capability, particularly in disinfection where we feel we're the leading supplier of disinfection technology and services in the world. I would point out that we do not operate these as individual companies. Rather, they have been integrated into a unified Severn Trent Services organization, with a unified sales force, technology development, and manufacturing.

WC&P: That ties into one of your latest acquisitions, CDG Technology.

Fleming: To correct, we licensed the CDG on-site chlorine dioxide production technology. The requirement for chlorine dioxide for municipal -- and some industrial -- disinfection applications is growing dramatically because of its ability to avoid production of trihalomethanes (THMs) unlike chlorine. We felt the CDG process, which utilizes our own chlorine supply equipment, followed by a sodium chlorate canister, to produce stoichiometric chlorine dioxide in a very economical way -- is the cheapest in the industry. As a consequence, we feel we have the best chlorine dioxide process in the industry and, thus, an additional capability to go with our chlorine, hypochorite, membrane, UV, etc., portfolio of disinfection solutions. And, it's a strategic objective to continue developing state-of-the-art disinfection technology, particularly with communities increasingly needing to focus on treatment of stormwater.

WC&P: Stormwater treatment? I assume that's regulatory driven.

Fleming: Under the Capacity, Management, Operation & Maintenance (CMOM) Program legislation, the USEPA is beginning to regulate the management -- including treatment -- of sewer overflow and stormwater overflows. This is a huge volume of water, currently, generally not treated. As a consequence, municipalities are now actively searching for solutions. It's our perspective that we want to be proactive in providing to municipalities, a solution to their situation, which includes assessment/ modeling of the issue, piping/ storage options, and treatment options. We've developed several proprietary processes for addressing sewer overflow, and are now installing a number of very large systems. And, we see much growth for this application over the next few years, and municipalities are just now pursuing solutions to meet the Clean Water Act requirements.

WC&P: It seems as if you've got UV covered, you've got membranes covered, you've got some basic filtration, chlorine? Ozone doesn't look as if it's in the mix. Are you looking to add something there to complement your disinfection needs?

Fleming: That's an astute observation. Our view is that ozone, although a well-known disinfection technology, is very limited in its application. As a result, we have the capability to provide ozone technology, where appropriate, but we did not feel the need to be a primary developer of ozone technology. We are, however, actively looking at expanding our ozone capability for certain applications where we are very active, including residual ozonation of bottled water in our bottling operations and equipment.

WC&P: Who do you work with to provide ozone services?

Fleming: We have a position with key ozone equipment suppliers.

WC&P: How do you view the competitive environment in water treatment today?

Fleming: They vary really by market sector. The competitors that are in, for example, bottled water treatment or water bottling systems are not the same as those in municipal drinking water systems, which is certainly not the same as boiler feed water systems industrially. So, it's really unique and specialty competition in each of those. It's not the same people. And that creates its own issues. But there are some commonalities. And the commonalities are that the municipal water market is the municipal water market and you can address it in one way, while the industrial market is different and has to be addressed differently. Each has to be approached individually by market segment. The food and beverage market requirements are different from electronics, which are different from petroleum. And each of them is handled differently in terms of what products you offer and how you do it.

WC&P: How do you split that up in terms of where your concentrations are, maybe in terms of revenue or units sold? How do you measure that internally?

Fleming: Well, if you're asking how do we go to market, that's one thing vs. revenue splits, that's another. It's simple. In terms of how we go to market municipally, we do it by direct sales people focused to municipalities but with regional sales people in each region focused on the requirements of each area. Say the city of Los Angeles, we have people in Los Angeles, we have offices and we have representatives. For us, the municipal market -- both drinking water and wastewater -- is a good portion of what we do. It's a very high percentage. But, having said that, it can be addressed by a single, unique sales force. The industrial market really requires more precise rifle shots, meaning that if you are focused to petroleum offshore platforms, you have to have people who do nothing but offshore oil platforms. Or those that sell to the marine craft market, only serve that market.

WC&P: They have to be an expert in that particular niche...

Fleming: Right, and we have market teams for industrial sales. We have a marine team that does nothing but shipboard services on a worldwide basis. We have a power team that does nothing but the power industry and power plants on a worldwide basis. They really have to be rifle shots.

WC&P: Anything in pharmaceutical?

Fleming: Pharmaceutical is really the same thing, although that's currently not an area we're strong in. We're not focusing on that.

WC&P: But if you're in power, then you're in ultrapure water...

Fleming: Right, we are.

WC&P: So, in those markets, you would target electronics and power and...

Fleming: In the industrial sector, those are some target markets. That's right. Pharmaceuticals has not been. We sort of keep bouncing around with that one.

WC&P: Do you have the markets that you look at in terms of percentage?

Fleming: In terms of market share and then compared to internal size?

WC&P: Both, market share and broken down in terms of percentage of the work you do internally...

Fleming: We do. For internal management, we're broken by product line and market -- sort of a grid. So, we can pull up the data both ways. Here's our 17 product lines. Here's what they're doing in gross margin, net margin and so on. Or we can break the grid horizontally and say here's the pharmaceutical industry, here's the food and beverage industry, here's the municipal drinking water industry, etc. We know how much we're doing, where it's being done on a worldwide basis, what the gross margins and net margins are and so forth. Yes, we break them both ways.

WC&P: Underscore for me if you could where Severn Trent Services strengths are then in the manner in which you do that?

Fleming: Well, there are several that we think are differentiable from other companies. One, of course, is our mass. We're easily one of the two or three guys in North America, if not the world.

WC&P: At $600 million, I believe.

Fleming: A bit more. Our strengths are that, in the areas we choose to focus in, we are No. 1 or No. 2. Our second strength is that we really are differentiated by product. In other words, we spend a lot of energy and time and resources on developing products. Our approach is total solutions, meaning provide the entire requirement to the client. If it's equipment, fine. If it's designing a water treatment process, fine. If it's own and operate the facility, fine. We do it all. And, if it's analytical services, we do that as you probably now. We have a very large environmental laboratory network...

WC&P: That actually seems to be where the majority of the acquisitions seem to have been concentrated in the past year...

Fleming: In sheer numbers, that's true, but that's because each one of those are very small. Each one of those are maybe $3-10 million in revenue. So, they're very small unlike an equipment company acquisition, which tends to be larger. So while that may be true in sheer numbers, I'm not sure it is on a revenue basis.

WC&P: Why focus there?

Fleming: For a couple of reasons, one of which is the market has been growing nicely and they're highly profitable. It's a very highly profitable segment of our business. It also provides strategically a customer base for our equipment and our operating services. I mean that in effect provides you with leads. So, we get a lot of our leads from laboratories.

WC&P: OK. Now, you were mentioning that, in total, there have been some 60 acquisitions...

Fleming: Something like that. Right.

WC&P: And this has been since when...?

Fleming: Really about 1993, although the real heavy acquisition period has been in the last two to three years up to the present.

WC&P: Strategically, which ones have been the ones that have stood out more clearly from the perspective of maybe your board or your shareholders?

Fleming: One of the unique things is -- and this is unlike say Vivendi or some other companies -- we immediately integrate our acquisitions. I mean once there in, they no longer exist as that company. You mentioned UAT before, for instance, UAT no longer exists. Torrance Operations exists. Supply of Membrane Systems on a Worldwide Basis exists. But it does not exist as UAT. The same applies to laboratories we've acquired. They become Severn Trent Labs. They're name disappears. We put different products into different facilities. The marketing gets assimilated into our entire network. So, very quickly we can't tell what that particular entity looks like anymore.

WC&P: Well, UAT -- or what once was UAT -- is probably the most familiar to our particular readership for WC&P. What is it now known as?

Fleming: It's not known as anything because it doesn't exist. There is Torrance Operations, which is the manufacturing center for skid-mounted equipment including membrane systems. I mean we've dropped (a few things) in there. For example, they're now building skid-mounted systems for hypochloric generators. They're also building point-of-use adsorption units for arsenic, for example. I mean there's a lot of things that facility is now doing. Their international sales people are now selling, say in Egypt, they're selling all Severn Trent Services products in Egypt. It isn't UAT anymore. Having said that, we're also expanding our membrane systems capabilities pretty dramatically. We've expanded that facility. It's a new facility. We've added a number of people. It's doing really well.

WC&P: In Torrance?

Fleming: Yes. Well, having said that, we're also building satellite facilities now in South America and Europe and the Middle East that are UAT -- well, not UAT -- rather they're simply membrane technology centers.

WC&P: In the Middle East, I would assume that's Egypt.

Fleming: It is Egypt.

WC&P: In South America...?

Fleming: Brazil.

WC&P: In Europe?

Fleming: England.

WC&P: So, these are all spinoffs of the acquisition and the natural strength you saw in acquiring UAT.

Fleming: Exactly.

WC&P: Are there particular markets where that fits in well for you?

Fleming: Our interest in membrane technology and what UAT had were really a couple of things. One of them was we wanted a membrane capability for production of drinking water, meaning big municipal systems all the way down to point-of-use. We also wanted membrane capabilities for municipal recycle, tertiary recycle and recovery of water. And, although they had not been in that world, they had the core technology and we have the knowledge. So, we were in essence developing products for that. That's what we wanted them for and that's what they're strengths are. And then, of course, the bottling activity is something we were interested in but had no background in while they did. Those are really added. It's three things. It's direct drinking water via membrane systems, municipal wastewater/tertiary recycle via membrane systems and then third is bottled water production. That's what we really wanted and what we received with UAT.

WC&P: Of those, are there new products that have spun out of this division?

Fleming: They already have. Even simple things like the new Arsenic Pro units.

WC&P: You mean the new product announced in June.

Fleming: Right.And that's not a membrane unit, but it's being built in Torrance. We've also just designed our first direct drinking water units. The first one was sold in Florida, large ones, municipality. That was just announced. It's in Collier County, which is the Naples area, South Florida. They're low pressure RO direct drinking water systems. Pretty large. And that was not a typical UAT thing. UAT did smaller systems, but Severn Trent had the ability to design larger ones and have them distributed and sold.

WC&P: How about looking at UltraDynamics in the UV market? This is another disinfection technology and it seems in the past year to year and a half to have been one where -- if you have that "Newsweek" thumbs-up/thumbs-down chart -- its thumb has gone up while ozone's has gone down relative to bromide.

Fleming: That's exactly right. That's another thing about what you asked earlier about our not being in ozone. Our view is we wanted to put our energy into UV and membrane disinfection and other advanced chemical disinfectants -- not into ozone. UV, as I'm sure you're aware, has really taken a thumbs up. Internationally, our first huge systems went into Finland, there are systems now in Germany and we've looked at these as moving into the states. USEPA is about ready to approve it. It's already being used for non-municipal facilities for drinking water. The bottled water industry has now approving UV as the final disinfectant as opposed to ozone. It's poised for dramatic growth.